TDS on FD – Section 194A

TDS on FD is deducted under the Income Tax Act, 1961. Fixed Deposit is a financial instrument offered by banks and other financial institutions to save money and earn a higher rate of interest. The interest earned from FDs is added to the income and is taxable. However, if your tax liability on total income amounts to Nil, you can claim for non-deduction of TDS on fixed deposit by submitting Form 15G / Form 15H, as applicable, to the bank. Read on to know details of how TDS is applicable to fixed deposit.

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TDS on Fixed Deposits

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 Tax deducted at source (TDS) is a form of tax subtracted from the interest earned on fixed deposits if it falls under a taxable category. Whether you are depositing money in a fixed deposit through bank or NBFC, the interest earned is eligible for TDS on FD.

You can check TDS on FD through Form 16A or Quarterly Interest Certificate issued by your bank. Both these forms also show the interest earned over a period of time.

Current Rates of TDS on Fixed Deposit


Payment NatureSection No.TDS on FD Rate till May 13,2020TDS on FD Rate from May 14, 2020
Interest other than income by way of interest on securities (e.g. Interest on Fixed Deposits)194 A10%7.50%*

*Rates Applicable only for current financial year

Points to Remember

1) TDS on FD interest gained up to Rs. 50,000 is eligible for exemption under Section 194A for senior citizens (individual of age 60 years and above) and Rs. 40,000 for other individuals.

2) FD interest gained over Rs. 5 lakh or 10 lakh is eligible for extra tax deductions of 10% and 20% respectively in addition to TDS as per the Income Tax Act, 1961

3) For NRI citizens, TDS on FD rate is 30%, which is also liable to surcharge tax and cess.

Rules and Regulations of TDS on FD

1) TDS on FD is applied only in case the interest earned exceeds the threshold limits in a given financial year (only interest is subject to tax).

2) Banks or financial institutions are liable to deduct TDS on FD at a 10% rate on the interest earned on a fixed deposit in a given fiscal year.

3) 20% TDS on fixed deposit is charged if an individual fail to provide PAN information relating to the FD account.

4) For joint account holders, fixed deposit TDS is deducted against the primary account holder’s PAN information, where the secondary account holder is not liable for any deductions relating to TDS on FD.

5) Relative bank or a financial institution of your fixed deposit account automatically deduct TDS on FD at the end of each fiscal year.

Interest gained from tax saver FD is also subject to TDS deduction..

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How TDS on Fixed Deposit is Calculated?

It is easier to understand how TDS on fixed deposit is calculated with an example.

Suppose Mr Suraj holds 2 fixed deposits in a bank – Rs. 3 lakh each. He earns 10% interest for 4 consecutive years.

Interest earned per year on both FDs – Rs. 60,000 (Rs. 30,000 per FD)

Interest earned in 4 years on both FDs – Rs. 60,000 * 4 = Rs. 2,40,000 (Rs. 40,000 per FD)

TDS on FD interest will be charged for both at 10% rate.

10% of Rs. 60,000 = Rs. 6000

Suraj will have to pay Rs. 6000 per year as TDS on FD interest.

You can also calculate TDS on fixed deposit by using an online TDS calculator or follow the same procedure for one or more fixed deposits.

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What are Form 15G and 15H?

a) Form 15G

It must be submitted in case an individual file zero tax in a given financial year. Form 15G is a declaration that an individual has earned below Rs.2.5 lakh per year (Rs.3 lakh in case of senior citizens) and has been exempted from paying any tax. Through this form, you can ask for exemption of TDS on FD interest.

Example

Mr Sharma is 45 years old and earned only Rs. 2.5 lakh this year. His earning from fixed deposit interest was Rs. 50,000. Since he did not pay any tax this year, he is also not eligible for a deduction of TDS on FD interest. He can submit form 15G as a declaration for exemption of TDS on FD interest.

b) Form 15H

Though this form serves a similar purpose, it is precisely for senior citizens of age above 60 years. For exemption under Form 15H, a person must earn below Rs.3 lakh per annum. You may or may not fall under the category of deduction on TDS for fixed deposits.

Example

Mrs Verma is 65 years old and earned only Rs. 3 lakh this year. Her earnings from fixed deposit interest were Rs.60,000. Since she did not pay any tax this year, she is also eligible for refund of TDS on FD interest. She can submit form 15H as a declaration for exemption of TDS on FD interest.

Note: All the deductions are made with a valid PAN card. Rates of TDS on FD can increase in the absence of an authentic PAN.

Also Read : TDS Rates

Understanding Fixed Deposits TDS

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1) Threshold for TDS on FD interest was Rs. 10,000 before budget 2019, now increased to Rs. 40,000 in budget 2020

2) When earnings exceed the prescribed threshold, banks are liable to deduct @ 10% annually on the interest amount

3) The absence of essential documents like PAN card can attract higher rates of TDS on FD

4) When your total income (including the interest on FD) falls under exemption limit (i.e. below Rs. 2.5 or 3 lakh), and your earnings from fixed deposit exceed the threshold (i.e. 40,000 or 50,000), your bank still cannot deduct TDS on FD interest

5) In case of low taxable income, you can submit form 15H and 15G for demanding exemption of TDS for fixed deposit.

How to Reduce TDS on FD?

1) You can open a fixed deposit in your nearest post office as no TDS on FD is deducted for such investments.

2) When your yearly income is below Rs. 2.5 lakh (people below 60 years) or Rs.3 lakh (people above 60 years), you can submit form 15H or 15G to get exemption of TDS for fixed deposit interest.

3) TDS on FD is calculated based on your total annual income. You can open fixed deposit accounts for your spouse or children if they are not earning or have earnings below Rs. 2.5 lakh. Consult your bank or CA before taking this step.

4) Invest or open your account in different banks or branches to reduce or save TDS on FD.

5) Invest after careful considerations of fixed deposit TDS workings.

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TDS on RD

a) RD stands for Recurring Deposits that can be made at regular intervals. Interest earned on RD is also fully taxable as per your income group.

b) The threshold rate limits remain the same as for TDS on FD interest.

c) If the interest paid to an individual exceeds Rs. 40,000, it is liable for tax deductions.

d) Remaining provisions for RD remain the same as of a fixed deposit.

FAQs for Fixed Deposit TDS

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Yes, every bank that opens a fixed deposit account issue a certificate for TDS on FD. It specifies the details relating to your fixed deposit such as interest earned, rate of deduction, or withholding amount.

Yes, you can ask the government for a refund if you have paid extra amount of TDS on FD. It can be done through filing income tax.

 Form 26AS contains details of tax credited or paid to the government. TDS on FD is a form of direct tax whose details can be found on  Form 26AS.

ParticularsSection No.Threshold Limit
No TDS from interest other than on security paid by banking or co-operative society engaged in carrying on the business of banking194A AIf the amount of interest paid or credited on time deposited during an FY exceeds Rs. 10,000 (for all) & Rs. 50,000 (60 years+) – from 1-04-2018 if the payee is resident Indian

w.e.f. April 1, 2019 – the threshold limit has increased from Rs. 10,000 to Rs. 40,000

Now that you know how TDS on Fixed deposit is calculated and TDS on FD interest limits, you can calculate it easily.

ARN: Sep23/Bg/03N

Sources:

www.incometaxindia.gov.in/Pages/faqs.aspx?k=FAQs%20for%20Senior%20Citizens

www.bankbazaar.com/fixed-deposit/tds-on-fd.html

www.paisabazaar.com/tax/tds-on-fd/#:~:text=The%20TDS%20rate%20on%20fixed,applicable%20in%20AY%202020%2D21.

www.cleartax.in/s/income-tax-on-fixed-deposit-interest#senior

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